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Sunday, 5 February 2017

Modi must aim for high growth with compliance (Sunday Guardian)

By M D Nalapat

Indian economy must enter into double digit growth mode, else there will be chaos.

Judging
by his pronouncements, it has become obvious that what Prime Minister
Narendra Damodardas Modi seeks is a transformation of the moral
framework of the citizen. Whether it be sage admonitions delivered in
“Man ki Baat” or on other platforms, or the snap delegitimisation of 86%
of the country’s currency and consequently its informal economy, Modi
is implementing steps that he regards as essential to wean the people of
India—especially High Net Worth Individuals (HNI)—off their addiction
towards personal enrichment through breaking the many rules that
successive governments in India have created in an imitation of the
British raj. Those who, in the past, saw Prime Minister Modi as being
entirely focused on economic growth the way Deng Xiaoping was in China
during the 1980s, have been shown to be wrong. What Modi seeks is less
the change in Gross National Income that Deng championed than a change
in the ethical chemistry of the citizen. He aims to make the citizen
“swacch” in thought, word and deed, as the old saying goes. It may not
have been properly reported in the media, but the first location to feel
the effects of Modi’s drive for cleanliness was the Prime Minister’s
House on what was formerly Race Course Road in Delhi, from which was
removed lorry-load upon lorry-load of what can only be described as
junk. This cleanup was after Modi began to live there. This pile of
rubbish had been maintained in situ by less swacch-oriented
predecessors, but could not survive Modi.

Deng Xiaoping was not fussy about
methods, for all that he sought was faster and faster growth. To him,
“whether a cat was black or white did not matter, so long as it caught
mice”, a method which oversaw the emergence of China as the world’s
second biggest economy, now five times India’s size. Such pragmatism
would have been painful to Mahatma Gandhi, for whom “means were
everything”, leaving little left for the actual ends of the policies
pursued. The Mahatma was so focused on changing the moral attributes of
the people of India that there were more than a few occasions when he
halted and reversed mass agitations designed to drive the British out
because of what he perceived to be moral frailties within the people. A
careful study of Prime Minister Modi’s words and actions will show that
he too regards the moral uplift of the citizen to be the primary task of
his government. Even if growth gets reduced, what is needed, in this
view, is the imperative of every citizen being brought to a situation of
full compliance, with the laws and regulations in force at that
particular time. To Deng, rules were bagatelle. What mattered were
results. So those who regarded Narendra Modi as the subcontinental
successor to Deng Xiaoping were wrong. To Prime Minister Modi, as to
Mahatma Gandhi, “means are after all everything”. And while Mahatma
Gandhi relied on Soul Force to change human personalities to the desired
behaviour pattern, Prime Minister Modi trusts in the agencies of
government to achieve the same result.

The only way consistent with high growth
rates for Modi to ensure that citizens function within the boundaries
set by law and governmental edict and yet remain as productive as their
kin in countries such as the US is to follow the example of that
country. In the world’s largest economy, tranches of activity that are
still proscribed in India are deemed legal, with the consequence that it
is far easier for an individual (or a business) to function within the
bounds of law and thrive in the US than is the case in India.

Prime Minister Modi needs to simplify
procedures in India such that it would be as painless and profitable to
operate businesses in this country as it is in those that have per
capita incomes twenty times what India has. The PM could prevail on
North Block to reduce taxes and do away with vexatious procedures, so
that tens of millions voluntarily enter into the tax net. As for the
Prime Minister’s dream of a cashless society, the day such modes get
freed of the taxes and imposts that cling on to them at present, the
sooner will citizens embrace cashless methods by their own free will. In
contrast, the 8 November 2016 order has forced the abandonment of
thousands of businesses and has caused the shedding of millions of jobs
because businesses are unable to switch so suddenly from paper to
plastic without forfeiting viability. By following a less coercive
course, Modi would achieve his goal of Citizen Compliance with Authority
in a manner that does not affect the economy the way the current
demonetisation has.

And what of the war against Black Money?
The implicit identification of all currency as “black” and all bank
transactions as “white” omits to take account of the billions of dollars
lost every month to India through bank transfers. It fails to take note
of the huge volume of licit currency transactions. For example, those
paying for petrol with currency pay a hefty indirect tax on such
purchase, even if they may have not on the currency they used. The
greater the velocity of currency transactions, the higher the number of
rounds of expenditure in which taxes will get paid, whether these be
direct or indirect. It should be the goal of government to increase such
a velocity and to make it ever easier for a politically non-influential
citizen to conduct his or her business. India is a short distance away
from chaos should the economy not enter into double digit growth mode,
and North Block’s attention has to be concentrated on boosting output
and overall income.

It is better to lose a rupee of tax and
gain twenty in output (and consequently almost certainly more than a
rupee more of tax) than to lose twenty rupees of output in the process
of trying to gain an extra rupee in tax.

Those voting for Narendra Modi in 2014 did so in order for
their lifestyles to improve. To them, “Acche Din” means faster growth
and a life more filled with economic attainment, and not the day when
government policy ensures that each citizen be made to practice the
Mahatma’s austere lifestyle.

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About Prof. M. D. Nalapat

Prof. Madhav Das Nalapat (aka MD Nalapat or Monu Nalapat), holds the UNESCO Peace Chair and is Director of the Department of Geopolitics at Manipal Academy of Higher Education, India. The former Coordinating Editor of the Times of India, he writes extensively on security, policy and international affairs. Prof. Nalapat has no formal role in government, although he is said to influence policy at the highest levels. @MD_Nalapat

MD Nalapat's anthology 'Indutva' (1999)

In 1999, Har-Anand published Indutva an anthology of MD Nalapat's 1990s columns from the Times of India. The individual columns are posted here, in 1998 and 1999 of the blog archive, though the exact dates of publication are uncertain.